Is Marketplace Loosing the Appeal to Retailers

The past one year has seen a growing number of global brands and retailers landed on the China market with the help of cross-border E-commerce, and Chinese shoppers are now increasingly engaged in overseas shopping on the Internet. It is expected that the total cross-border E-Commerce trade will exceed 6 trillion RMB at the end of 2016.

In the meantime, there are brands and retailers seeking new ways to reach the Chinese consumers rather than simply launching a flagship store on the largest online marketplace in China, Tmall. Coach, Asos, and Amcal are among the group of retailers establishing their own E-commerce stores outside marketplaces. While major marketplaces are still top choices for retailers owing to their mass customer base, credibility and ease to setup, there are drawbacks to launching on marketplaces. Hereafter are the three reasons that make marketplace a less appealing option.

Unsustainable business model

A successful business is built on sustainability, and that requires the business operated under reasonable cost and higher return on the investment. If the cost of operation on marketplaces eats into too much of the margin, then it is harmful to the business. For example, operating on marketplaces often requires a fixed amount of annual service fee and a commission based on the value of each transaction. Retailers also need to partner up with local operations service providers designated by the marketplaces as required and pay 10% to 15% of commission fees, as sources tell. The entire operation cost of running the marketplaces stores are also born by the retailers.

Retailers also need to put in sizeable invest in traffic acquisition to attract more buyers. The growth of traffic on the marketplace is slowing down in general, and to compete for the limited resources available on the marketplaces, retailers need to bid for a higher price. As recent media report shows that the cost of traffic acquisition within major E-commerce eco-system was continuing to rise, forcing retailers to invest 9 times more than 2014 [1]. It could be detrimental to retailers if they fail to establish customers loyalty through expensive traffic acquisition.

Sales campaign on the marketplace is also expensive when the retailers need to provide free shipping and cover tax for the customers. A number of overseas retailers had raised their prices on the marketplaces to cover the additional cost. Take Woolworth for example, the same baby formula was selling at 18 AUD per can, and the discounted price in China was set at 270 RMB (approximately 52 AUD) every two cans, without tax and shipping fee, which is more than 40% higher than the original price. As a result, customers may find their products to be less attractive, and they would rather purchase the same baby formula from other marketplace stores or through Daigou.

Building customer loyalty can be difficult

Chinese consumers usually search for a better deal on the marketplace, and the powerful searching tools on marketplaces make it even easier for consumers to compare prices between different stores. This is part of the reasons that the customers on the marketplaces showed less loyalty to stores on the marketplace.

There is no doubt that the major marketplaces are investing a lot in building customer loyalty, and it significantly increased the rate of repurchase on the marketplaces after precise and regular engagement with the customers, but it doesn’t equal to a customer being loyal to a particular store on the marketplaces. If retailers need to build customer loyalty on their own, they are still required to establish their own CRM system.

Limited choices for creativity

Benefits of marketplaces come at a price, which is to play by the rules set by the marketplaces. To ensure a unified shopping experience for customers, it is reasonable to standardise different modules, but the drawbacks are also evident — changing the looks of the stores can be difficult, creative choices are limited, and that retailers have to rely heavily on the services provided by the marketplaces.

What can we learn from the migration from marketplaces to another platform?

Apart from the above-mentioned issues, the language barrier, different cultural background, and escalating competitions are holding retailers back from becoming more successful in the China market. Chinese consumers now have more choices than ever, and it is very important that the retailers find out the right market segment and differentiate their brands and services.

Escaping from major marketplaces is not equivalent to quitting the China market. The traditional boundary of E-commerce is getting blurred as M-commerce become popular. We had witnessed a growing number of stores attempting to reach out to customers via social media channels, key opinion leaders (KOL), and other emerging channels. The idea is that a store on marketplace are not necessary to be the sole destination of the entire shopping journey. When a potential client reads an article on WeChat, they can follow the links to a purchase to a store that is secure, frictionless, and supported by multiple payment methods.

References

[1] Qilu Daily, Rising Cost of Traffic Acquisition is harmful to Medium and Small Vendors, via news.163.com